Delivering Services, Not Profits

The U.S. Postal Service (USPS) has announced that it intends to end Saturday mail delivery starting in August. The move is designed to cut costs, which many people, including members of Congress, say needs to be done because the agency is losing a lot of money.

With more and more people using email and other forms of electronic delivery as well as online bill paying, the volume of mail delivered by USPS the "old fashioned" way is down and it will likely continue to decline. However, there are still people who rely on snail mail and those people are going to be hurt. For them, a reduction in service is functionally like a tax and they don't deserve it.

What gets me is that the anti-USPS crowd often complains about the agency's inefficiency. They say it needs to be run more like a business. For the most part these are the same people who say that the entire government needs to be profitable and run like a business. Frankly, I just don't get this. Government is for the public purpose; business is for profits.

Can't people see that if government were truly run like a business then all profits in the economy would quickly flow to government? That's because the government imposes taxes and fees and makes the laws; therefore, if it were to operate as a highly competitive entity (as any private sector firm must) it could establish laws, taxes and fees that gave it a huge advantage over anything in the private sector. As a result, it would own all the means of a production in no time flat. And that's not business, it's communism!

Second, even if we assumed that government left the rules so that private industry could compete, then profits earned by the government would be profits that the private sector would have earned. For example, people complain that the USPS is not as efficient as Federal Express (FDX) or United Parcel Service (UPS), but it costs 60x more to send a letter via those carriers than it does with the USPS. Its services, therefore, represent a subsidy to the private sector. This is money that the public would have had to pay, but instead it gets to keep. What's wrong with that?

Now turn it around. If the USPS started doing business like Fedex or UPS, then some of the profits that would have been earned by those firms would go to the government. In other words, the private sector would earn less and the government more. The money goes to the Treasury and gets taken out of the economy. How is that good?

One government entity that is actually really profitable is the Federal Reserve. The Fed earned $80 billion in profits last year and it turned it all over to the Treasury. That's more than Apple (AAPL) and just shy of the $94 billion in pretax profit netted by Exxon Mobil (XOM). How did the Fed earn that money? It earned it on its holdings of government securities. But those are profits that would have been earned by the private sector if the Fed hadn't bought those securities. Instead of that $80 billion going to private citizens and firms, it went to the Treasury. Gone. Taken out of the economy!

As it stands, the government is already a partner in every business by virtue of the fact that it collects taxes. It is making profits, but frankly, every businessman will tell you that those profits are killing us. It's the reason why they're always screaming for lower taxes.

The bottom line is that it's OK to desire a more efficient, well-run, less bureaucratic government -- but once you start demanding that it act like a business and earn profits, you will very quickly find that there is not a whole lot left over for the private sector.